Brown, Neri, Smith & Khan LLP Blog

DotConnectAfrica Trust (DCA), a client of our firm, won a victory in its ongoing efforts to bring greater internet access to the continent of Africa.

DCA is currently in a suit against the Internet Corporation for Assigned Names and Numbers (ICANN) for the fraudulent rejection of DCA’s application for the top-level domain name “.Africa”. In an effort to dismiss the case, ICANN moved for summary judgment, arguing DCA’s suit was barred by 1. a Covenant Not To Sue, and 2. Judicial Estoppel.

In its Motion, ICANN contended that DCA had completely waived its right to sue by signing a litigation waiver in ICANN and DCA’s original contract. Additionally, ICANN argued that DCA’s previous statements before an Independent Review Panel were so contradictory to its current positions that the suit should be barred by the doctrine of Judicial Estoppel.

Judge Howard L. Halm, however, ultimately agreed with DCA’s lawyers from BNSK. He ruled that, under California statutory law (Cal. Civ. Code § 1668), Covenants Not To Sue did not apply to lawsuits for fraud or willful injury. Therefore, six of DCA’s causes of action could not be barred by the Covenant, because they alleged fraud and/or willful injury. Additionally, Judge Halm did not apply Judicial Estoppel because 1. the evidence was unclear whether DCA had taken a contradictory position in the past, and 2. ICANN had not produced evidence indicating that, if DCA had changed its position, it had done so in bad faith.

With this victory, DCA can continue to vindicate its rights, in an effort to ensure that the significant benefits of information technology are available to the people of Africa.

DCA was represented by BNSK attorneys Ethan Brown, Sara Colón, and Rowennakete Barnes. ICANN was represented by international law firm, Jones Day.

The California Supreme Court’s refusal to hear an appeal regarding Gibson Dunn & Crutcher LLP’s recent disqualification from representing another large firm should serve as both a clarification of attorney-client privilege and a word of warning to law firms.

The Court rejected a petition to hear McDermott Will & Emery LLP v. Superior Court, 10 Cal. App. 5th 1083 (2017), a decision from the California Court of Appeals’ Fourth District. There, the appeals court affirmed the disqualification of Gibson Dunn from representing McDermott Will & Emery LLP in a malpractice suit. It also held that an email sent by a client to a third party prior to the litigation did not waive the attorney-client privilege protecting that email’s content.

Case Background

Dick Hausman, the older head of a wealthy family, ran a company that was regularly represented by the law firm, McDermott Will & Emery. However, during an internal struggle for control of the family company, Hausman retained personal, third party counsel, and had a meeting with this new attorney to discuss his legal options. Shortly after, the attorney sent an email summarizing the meeting, and Hausman, who was 80 and suffered from Multiple Sclerosis, accidentally forwarded the message to his daughter-in-law. She, in turn, sent the message to multiple members of the family.

Two years later, McDermott Will & Emery was sued by the family over conflicts of interest and was represented by the law firm, Gibson Dunn & Crutcher. Gibson’s attorneys offered the email as evidence, and did not return the email when opposing counsel said it was inadvertently disclosed privileged material. In turn, opposing counsel filed motions seeking 1. Judicial determination that the email was privileged and had been inadvertently disclosed, and 2. Gibson Dunn be disqualified from representing McDermott in the matter at hand. The trial court granted both motions and the court of appeals affirmed. In its affirmance, the court of appeals ruled that the email was obviously privileged because it was from an attorney and summarized a meeting with a client. Furthermore, the court held that Hausman did not waive his privilege as to the email, because his forwarding was accidental. Furthermore, it also held that disqualification was the appropriate remedy because Gibson Dunn had reviewed and used the email already, which raised the likelihood the exposure could affect the outcome of the case.

Impact of Case

This case seemingly expands the strength of attorney-client privilege. Prior to this case, the State Fund rule, which requires that opposing firms not use materials which are obviously privileged, had mostly been applied to instances of disclosure by opposing counsel and during litigation. In contrast, this court found there was obvious privilege even though the disclosure was made by the client and years before the onset of litigation. Essentially, the court ruled that the email, on its face, should have indicated to Gibson Dunn that it should not be used, even though the client had directly sent it to a third party.

McDermott currently has requested the court to depublish the case, meaning that it could not be used as binding law in the future. In the meantime, California lawyers and clients need to be aware of the documents they use as evidence. If there is any indication that the information is privileged, regardless of when and by whom it was disclosed, it would be wise to not use that information until it is approved by opposing counsel or the judge.

On June 20, 2016, the Hon. R. Gary Klausner ruled in favor of our client DotConnectAfrica Trust (DCA), affirming his April 12 order enjoining Defendant Internet Corporation for Assigned Names and Numbers (ICANN) from delegating the top-level internet domain .Africa.

On May 6, former Defendant ZA Central Registry filed a motion for reconsideration challenging the Court’s decision issuing the preliminary injunction. ICANN joined the motion shortly after. However, ZACR's motion to dismiss was pending prior to the motion for reconsideration. The Court granted ZACR’s motion to dismiss and refused to consider ZACR’s arguments for reconsideration as moot. Thus, the Court only addressed points raised by ICANN.

ICANN raised two main points: (1) an erroneous factual finding; and (2) plaintiff’s misrepresentation of facts regarding irreparable injury. ICANN further argued that a bond was required by DCA, should the preliminary injunction remain in place.

As to the first point, the Court acknowledged the erroneous finding of fact – as did both ICANN and DCA – but agreed with DCA that the error was harmless. The Court held “upon reconsideration of the facts and evidence, there still exists serious questions going to whether Plaintiff had acquired a sufficient number of endorsements to have passed the geographic names evaluation phrase in the first instance.” Relying on ICANN’s internal review process holding, Judge Klauser held that “both the actions and inactions of the [ICANN’s] Board with respect to the application of Plaintiff relating to the .AFRICA gTLD were inconsistent with the Articles of Incorporation and Bylaws of ICANN.” Judge Klaunser found it reasonable to infer that ICANN improperly rejected DCA’s application at the geographic names evaluation phrase and that the application should proceed to the delegation phrase. The error in ruling was “not determinative to its [the Court’s] ultimate conclusion” that there are serious questions going to DCA’s likelihood of success.

As to ICANN’s second point, the Court held that ICANN failed to raise the arguments in the first place. The argument failed for that reason alone. Regardless, the Court also held that DCA sufficiently demonstrated irreparable harm.

Finally, the Court refused to consider ICANN’s request for a bond. Holding that ICANN also failed to raise this point opposing when opposing the preliminary injunction, ICANN would not get a second bite at the apple.

The Court also noted that ZACR failed to respond to DCA’s argument that ZACR had sufficient time to oppose the preliminary injunction before it was issued and held that ZACR’s evidence of damages too speculative to require any bond.

In a recent unpublished decision from the Ninth Circuit Court of Appeals (Global BTG, LLC v. National Air Cargo, Inc., 2015 U.S. Dist. LEXIS 70386), the Court affirmed a jury verdict finding an exclusive contractual relationship in the absence of any express exclusivity contractual provision. Although lacking any express exclusivity, the Court found the extrinsic evidence of intentionally omitting a non-exclusivity provision, the type of business relationship, and industry norms sufficient to support the verdict.

In July 2010, the parties entered into a Letter of Intent (LOI) for financing several commercial airplanes. Less than a year later, Global brought suit for breach of the LOI. The jury found in favor of Global and awarded $8 million in damages.

On appeal, National sought review of partial summary judgment, the denial of judgment as a matter of law, and the denial of a motion for a new trial, among other things. National's main argument on appeal was that the facts did not support a finding of exclusivity. National argued that the lack of an exclusivity provision - or silence as to the matter - could not amount to an exclusive contractual relationship. The Court disagreed. Despsite the lack of an exclusivity provision, the language of the LOI created an exclusive relationship. The LOI was for the purchase, lease and finance of eight specific aircraft. That relationship between two parties, for the specific goods identified, could only have been exclusive.

Providing more weight to Global's argumen was the intentionally omission a non-exclusive provision during the parties' negotiations. Global presented this fact to the jury, along with the fact that a non-exclusive relationship was impractical to its business, and other industry norms. Because the jury could have reasonably found an exclusive relationship, the Court affirmed the trial court's ruling on summary judgment and refused to reverse the jury verdict or grant a new trial.

California Code of Civil Procedure §1032(a)(4) defines the “prevailing party” to include “the party with a net monetary recover” and “a defendant in whose favor a dismissal is entered.” The statute entitles the prevailing party to the costs in the proceeding. In a recent proceeding, the California Supreme Court was faced with the question of whether a plaintiff who settles some claims and voluntarily dismisses the remaining claims is considered the prevailing party and therefore entitled to costs.

In DeSaulles v. Community Hospital of the Monterey Peninsula (62 Cal.4th 1140 [2016]), Maureen DeSaulles sued Community Hospital of the Monterey Peninsula (the “Hospital”) for: (1) failing to accommodate physical disability or medical condition; (2) retaliation under Cal. FEHA; (3) breach of implied conditions of an employment contract; (4) breach of the implied covenant of good faith and fair dealing; (5) negligent and (6) intentional infliction of emotional distress; and (7) wrongful termination. The Hospital successfully moved for summary judgment and the exclusion of evidence for all but DeSaulles' third and fourth claims.

Prior to trial, the parties settled the remaining claims. Under the settlement, the Hospital would pay DeSaulles $23,500, DeSaulles retained the right to appeal the summarily adjudicated claims, and DeSaulles would voluntarily dismiss her remaining causes of action. After the Court of Appeal affirmed summary judgment in the Hospital’s favor, both parties sought costs as the prevailing party. The district court held the Hospital to be the prevailing party based on the fact that it succeeded on the majority of claims pleaded. The Court of Appeal reversed, holding DeSaulles as the prevailing party for obtaining a net monetary recovery. The Court of Appeal explained that summary judgment did not dispose of the case; As two causes of action remained for trial, the Hospital at most obtained a partial dismissal. The California Supreme Court granted review.

The Court explained that an award of costs is justified on the theory that “to a plaintiff […] the default of the defendant made it necessary to sue him, and to a defendant, that the plaintiff sued him without cause.” Put otherwise, the party responsible for initiation of the lawsuit pays the costs to the blameless party. Under CCP §1032, a prevailing party is entitled to recover costs and defines the prevailing party as: “a party with a net monetary recovery, a defendant in whose favor a dismissal is entered, a defendant whether neither plaintiff nor defendant obtains any relief, and a defendant against those plaintiffs who do not recover any relief against that defendant.” A recovery other than monetary relief or outside of the described situations, vests the court with discretion to award costs. The statutory rule is only a default rule and can be modified by agreement of the parties.

The Hospital relied upon Chinn v. KMR Property Management (166 Cal.App.4th 175 [2008]) for the holding that settlement proceeds are not a “net monetary recovery” that would make the settling plaintiff the prevailing party. Reviewing the legislative history of Section 1032 and the related case law, the Court overturned the holding in Chinn. The Court explained that the language providing for costs to a defendant when the plaintiff voluntarily dismissed the case did not include the situation where the plaintiff obtained a monetary settlement as well. Costs available to a defendant prevented a plaintiff from filing a claim without merit and driving up the costs, only to dismiss on the eve of trial and force the expense of a frivolous lawsuit on the defendant. A situation where the plaintiff obtained a monetary settlement was separate and distinct.

Since Chinn no longer applied, the question remained whether a plaintiff who obtains a monetary settlement and voluntarily dismisses the remaining claims is entitled to costs as the prevailing party. The Court found no reason why a monetary settlement was outside the definition of “monetary recovery.” Just as a plaintiff cannot avoid costs if a suit without merit is dismissed prior to trial, a defendant cannot avoid costs if it settles also prior to trial.

The Court held that a dismissal pursuant to a monetary settlement is not a dismissal in the defendant’s “favor” and the plaintiff is entitled to costs. The rule only clarified the default rule, while leaving open the availability of a private agreement between the parties apportioning costs. The Court disapproved the holding of Chinn and affirmed the Court of Appeal’s judgment.